Applying for a personal loan is easy. All banks and NBFCs have personal loan products. The eligibility norms are easy,and so are the documentation processes. You get the disbursal of the loan in your savings account within 72 hours. However, you should ask some questions to your lender before Availing a Personal Loan.
Never sign a lending agreement without being aware of vital information about your home loans. There are camouflaged conditions involved in a personal loan. You will not know until they strike you. It is better to ascertain these aspects beforehand and be aware of these terms and conditions. Never hesitate to ask these questions to your lender. You have a right to this information.
What are the payment methods and the payment schedule?
The first question you should ask is to hand over the payment schedule. You have a right to know the amount you have to pay every month. Ask for the amortisation schedule at the initial stage itself on the bank letterhead. You might need this document in the future. You can incur expenses should you ask for this document at a later stage. The amortisation schedule will give you the details of appropriation of interest and the principal amount from the EMI you pay every month.
It is also better to seek information about the methods of repayments. Usually, banks prefer to deduct the amount from your savings account. You need to maintain the necessary balances in your savings account on the respective dates. Alternatively, the banks seek ECS mandates if you manage your accounts with other banks. In any case, you should maintain the adequate balance to facilitate the recovery of the loan instalment. Otherwise, you risk paying late payment penalties, ECS/cheque bouncing charges, and so on.
Are there any additional expenses to incur?
Personal loans come with many camouflaged expenses. You should be aware of these costs. Many banks sell insurance products. These banks would love to market these products to their personal loan customers. Usually, they deduct the insurance premium from the loan disbursal amount. These insurance products can be loan insurance, personal accident insurance, or health insurance. However, these are optional services. You can choose not to avail of these services if you so desire. It makes the reading of the terms and conditions critical. People have a habit of signing on the dotted line without reading the terms and conditions. Nevertheless, it does you no harm if you ask these questions to your lender before you avail the personal loan.
Will I be able to pre-pay the personal loan?
It is one of the most crucial questions to ask your lender. If you have excess funds at your disposal at any stage during the tenure of your personal loan, do you have the facility to pre-pay the loan amount? Most of the banks stipulate conditions that you cannot pre-pay the personal loans during the first year of its tenure. You can foreclose your personalloan from the second year onwards. However, you incur prepayment penalties that can extend up to 5% of the outstanding principal amount. You should be aware of these conditions before you sign on the personal loan documents.
What are the interest rates and are they subject to change?
Your sanction letter contains this information. However, you should confirm from the lender whether they charge interest on the floating or fixed interest rate basis. You should also verify whether you have the facility to switch over from the fixed to the floating rates and vice versa. Sometimes, you have to incur charges for doing so. Confirm these aspects of the sanction. If you agree to a floating rate of interest, your effective rate of interest will keep on changing at frequent intervals. Banks usually, sanction personal loans at a fixed premium over the MCLR subject to half-yearly resets. Any increase in the interest rates affects your EMI. Banks prefer to keep the EMI constant and increase the tenure. However, you have the facility to choose otherwise. Similarly, your tenure can reduce if the rates reduce.
Will the bank report my credit history to the credit monitoring agencies?
Banks have a right to report your credit history to the credit monitoring agencies. A regular repayment record can go a long way in improving your credit score. At the same time, an irregular repayment history can affect your credit rating adversely. In fact, it is compulsory for banks to report your credit history to the credit monitoring agencies. Nevertheless, you should confirm this fact from the bank.
If you read the terms and conditions carefully, you find the answers to all these questions. However, a majority of people do not read the terms and conditions of the sanction. Hence, they end up with a lot of doubts.
Also Read: Is Your Credit Score Affecting Your Loan Eligibility?
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